‘Sooner or later, there will be a new financial crisis’

Eric Toussaint, spokesman of the Committee for the Abolition of Illegitimate Debt (CADTM)

Regulators, governments to blame, says Eric Toussaint of the Committee for the Abolition of Illegitimate Debt.

The recent bubbles in the stock exchanges and financial markets foretell an imminent financial crisis that would likely be stronger and more dangerous than in the past, according to Eric Toussaint, historian, political scientist and a spokesman of the Committee for the Abolition of Illegitimate Debt (CADTM).

In an interview to The Hindu, Mr. Toussaint, who was recently in Sri Lanka for a regional seminar on debt, spoke on the risks of banks engaging in speculative activities.

The capitalisation of the stock exchange does not correspond with the real value of the assets of the big corporationsCharging regulatory authorities of being “very lenient” with the banks, he said that governments and regulatory authorities were supposed to moralise the banking system, separate commercial banks from investment banks, end exorbitant salaries and bonuses, and finally finance the real economy. “Instead… all we have had is a long list of misappropriations that have been brought to light by a series of bank failures and big scams.”

The CADTM is an international network of activists working on cancellation of illegitimate debt. Based in Belgium and Morocco, its activists work on developing alternatives to help communities tackle the pile up of debt, with particular focus on the global south. Mr. Toussaint’s book ‘Bankocracy’, published in 2015, drew global attention for its analysis of the role of banks and governments in enlarging public debt.

Now, he warns of a “new crisis”, consequent to a series of misjudgements in policy in recent years.

While the central banks bought such products, giving banks “a lot of money” in return, the banks did not lend it to producers or households. Instead, they used it for further speculative activities leading to “a new bubble” in stock markets for about four years.

“It is absolutely evident that the capitalisation of the stock exchange is totally exaggerated, that it does not correspond with the real value of the assets of the big corporations. Sooner or later, there will be a new financial crisis,” he said.

On the banking sector crisis in India and the demand from sections for its further privatisation, Mr. Toussaint said the problem does not come from the public character of the banks, but from them having adopted a behaviour similar to the private sector’s.

“The public banking sector, like the private banking sector, is in favour of secrecy and doesn’t want to be controlled. The challenge for us is to improve and to materialise the public character of the banking sector — and in the case of India, to defend the public banking sector, but to change it profoundly.”

‘Socialisation of banks’

The public banks should intervene in the local economy and help it develop and coincide with the needs of the peopleMr. Toussaint advocated the “socialisation of the banks” where citizens, the banks’ employees and local authorities control the activities of banks. “The public banks should intervene in the local economy and help it develop and coincide with the needs of the people.”

During Obama’s Presidency, the US Congress adopted a law – the Dodd-Frank Act to strengthen the regulation and control on the US banks. And now Trump is dismantling it and eliminating the few policies and regulatory measures taken in the name of the Dodd-Frank Act.

http://imf.org. It is important to analyse these contracts and the conditions imposed by the creditors, and to understand the real sense of the policy implemented by the governments. They can say: “We are borrowing money for that purpose”, when in reality they use it for another purpose. As CADTM members, our challenge is to help the citizens trying to question the accumulation of debt in order to reach a conclusion about the legitimacy or illegitimacy of debt.

The CADTM, as an international network, published a manual for the citizen to audit the debtFor instance, in collaboration with the President in the Greek parliament, the CADTM coordinated the truth committee on public debt in Greece. The CADTM, as an international network, published a manual for the citizen to audit the debt, participated in the audit of debt in Ecuador in 2007-08, and then in Paraguay in 2008. In Spain, we work with new political forces coming from citizen mobilisations like the anti-austerity movement organised around public squares in 2011. After they defeated the traditional parties in many municipal elections, these forces are willing to enforce citizen debt audits. Despite the willingness of these new political forces, we are convinced that this objective can only be implemented under the pressure of popular movements – this is the meaning of our work there.

The massive level of public debt reduces the capacity of public authorities to guarantee to citizens the satisfaction of human rights at the level of education, health, security, jobs. Therefore, tackling the problem of the huge amounts of public money used to pay back the debt is vital if we want to free major parts of the budget to satisfy the needs of the people.

You are saying that huge amounts of public debt weaken public institutions, governance etc. Could you talk a bit about the possible political fallout to this trend? In the last few years, in many parts of Europe and elsewhere, we see ultra nationalist forces gaining more political ground. Is there a link between the financial crisis, the weakening of public institutions due to mounting debt and the rise of the ultra-right?

Yes, it is clear that there is a link. At the same time, I am not sure that the general trend is always in favour of right wing policy. It depends on the situation. In Europe and in North America it is clear that the majority of the citizens are not satisfied with the traditional parties.

I am not sure that the general trend is always in favour of right wing policyRight-wing parties succeed in gathering popular support denouncing the [current economic] situation and proposing nationalist, chauvinist, racist, anti-migrant policies. But at the same time, when real progressive forces try to explain to the citizens another alternative they can gather important support. An example of that is Jeremy Corbyn’s campaign in Britain last year. The Tories precipitated the elections thinking that they would have a victory one year after Brexit. As a militant on the left of the Labour Party, Corbyn proposed a radical policy of nationalisation of the railways, of the postal services, of finding a solution to the problem of student debt, of the debt of municipalities and defending an anti-racist, internationalist position. The votes in favour of the Labour Party increased and he won 30 seats in the parliament while Theresa May lost 13 seats! Now the Left is gaining space in Britain and right-wing parties are not.

In the US, the situation was contradictory. If the Democratic Party had decided to support Bernie Sanders as a presidential candidate, it would have won the election against Trump. In the eyes of the people, Hilary Clinton represented the establishment. Trump represented a possibility of change and Sanders too – if Sanders had been selected by the Democratic party he would surely have been victorious, given that Sanders’s engagement in favour of the people is clearly more authentic than Trump’s theatrical gesticulations.

It is clear that so-called right-wing populist campaigns are gaining space because of the scandalous evolution of finance and the influence of the big corporations and bankers on the traditional parties. But the situation is not so much in favour of the right when the left is capable of presenting another perspective. Then, the left really has the possibility to be victorious.

In the wake of the banking sector crisis in India – marked by huge scams to the tune of billions of dollars – many economists, policy makers argue that there has never been a better time for further privatisation of the banking sector. Do you think that would work?

The citizens, the banks’ employees and the local authorities should control the activities of the banksThe real problem is that the current public banks are not really acting in favour of the majority of the population. The problem does not come from the public character of these banks, but from them having adopted a behaviour similar to the private sector’s. They are not taking the responsibility of service to the public upon themselves. And there is a lack of citizen control on the public banking sector. The public banking sector, like the private banking sector, is in favour of secrecy and doesn’t want to be controlled. The challenge for us is to improve and to materialise the public character of the banking sector – and in the case of India, to defend the public banking sector, but to change it profoundly. It should stop speculative activities and clientelism and it should give loans to households, to municipal authorities for useful projects to improve the economy and living conditions of the population. I am advocating the socialisation of the banks. It means that the citizens, the banks’ employees and the local authorities should control the activities of the banks. The public banks should intervene in the local economy and help it develop and coincide with the needs of the people.

In Sri Lanka there is an increased awareness about microcredit and indebtedness. Is this a trend in the global south? It seems prevalent in South Asia.

The industry of microcredit: more than 120 million borrowers of microcredit loans around the world and 81 per cent are womenMicrocredit is extending its activities in Latin America, in Africa, in Asia, everywhere in the global south. There is a huge propaganda campaign and very strong institutional support – right from the World Bank to most national governments — to microfinance, which is depicted as the solution for the poor through their connection to the market. Big private banks are more and more involved in microfinance. We can really speak of an industry of microcredit. It is internationally developed, supported and organised. You have now more than 120 million borrowers of microcredit loans in the world and 81 per cent are women.

But why is it more widespread in the global south, almost as if it targeted these countries that have aspirations for development?

On the global scale, two billion adults don’t have yet a bank account, and most of them live in the global south. Microfinance aims to connect these adults to the financial markets. Microcredit is the link to connect them to the globalisation of the economy. It is a tool to incorporate them fully to the capitalist system or the mercantile system.

When we spoke about the rise of the ultra-right, you said it was possible for progressive forces to present an alternative. You have also said earlier that there is a need for working class movements and trade unions to widen their struggle to incorporate questions on indebtedness.

To maintain the possibility of consumption, more and more people get indebtedYes! We on the left decayed since Thatcher and Reagan came to power in the beginning of the 1980s. There has been a general offensive of big capital against social rights. The traditional working class has been affected. More and more workers or employees have a very precarious job. The sector of the working class which is in the formal sector is a minority in most the of countries – you know it in India. This trend is also true in countries like the USA and a majority of countries in Europe – precarious, part-time jobs increase. More and more people are indebted, because the wages are going down. To maintain the possibility of consumption, more and more people get indebted.

It was very clear, for instance in the US, with the subprime crisis. After the explosion of the subprime crisis in 2006-2007, 14 million indebted families in the US were evicted from their homes.

It is more complicated to participate in social movements and in strikes for people who need to repay their debtMy visit to Sri Lanka has showed me how fast the microcredit industry developed its activity in the country after the end of the war in 2009 and how brutal it could be – it is impossible for people to repay a debt if they should pay 40 to 60 percent interest rates. Giving micro loans at this rate is creating a condition of over-indebtedness. People have to take more microcredit loans to pay back previous ones. It is a vicious cycle which causes tremendous problems for the victims of this situation, a majority of whom are women. It is incredible to listen to the testimonies – women telling us that microfinance agencies are giving loans to people who have no earning. It is impossible to repay a debt without any earning, so they will lose the few assets they can have – if they have a house, a small land where they cultivate vegetables, they will lose them to pay back the debt.

Both in the global north and in the global south, the challenge for the workers’ movements is to take into account the question of private debt of the households, because it is more complicated to participate in social movements and in strikes for people who are under enormous pressure because they need to repay their debt.